8th annual seminar: budgeting for results: moving …...1. a simple model for programme based...

1 | P a g e The Sequencing and Time Table of Programme Based Budgeting Reform

Roundtable Discussion 1: The Sequencing and Time Table of Programme Based

Budgeting Reform

Ronald E. Quist1

Abstract

When programme based budgeting is implemented successfully, it can provide significant

improvements in improving economic governance. It provides a straightforward mechanism by

which a government can, on an informed basis, make decisions about the efficacy of the allocation of

its scarce resources and determine whether policy objectives are being met or not. It however

represents a substantial increase in budgetary management sophistication with particular challenges

to budget implementation, especially for developing countries typified by capacity constraints, weak

financial networks and highly centralised public administrations with long expenditure management

pathways. Clearly successful programme based budgeting implementation requires a minimum

threshold of public finance management performance and economic governance. The risks

associated with implementing programme based budgeting are mitigated by adopting a carefully

sequenced approach to reform. Three main sequencing phases are identified. The first phase seeks to

strengthen basic PFM performance. The second phase seeks to create an enabling context for the

implementation of the core PBB functions. This phase is guided by a process of enhancing

performance informed budgeting. The third phase introduces the core PBB functions. The sequencing

of which is guided by PFM functional linkages.

In this paper, a method for establishing the minimum threshold for Public Finance Management

performance using PEFA indicators is developed. The method is applied to a sample of countries that

have successfully implemented programme based budgeting as well as ones currently grappling with

undertaking reforms. Further an approach for sequencing reform based upon activity chain

considerations is developed. The analysis presented leads to the conclusion that programme based

budgeting implementation requires a gradual approach that may well dictate a time table of a decade

1 Ronald Quist is a public finance management consultant and CEO of the Idilmat Capacity Development

Institute, Fiore Heights, Ring Road Central, Accra, Ghana. E-mail: [email protected]; website:

www.idilmat.com. This paper was written under a grant from CABRI. The author is grateful to CABRI for its

generous support. The paper reflects the views of the author and does not necessarily reflect the views of

CABRI.

8th ANNUAL SEMINAR: BUDGETING FOR RESULTS: MOVING TOWARDS

PERFORMANCE BUDGETING


or more. This conclusion raises the question of the prudence in making the implementation of

programme based budgeting a conditionality for donor funding governed by a financial instrument of

three years or less.

Introduction

In the last decade, many OECD countries have reformed their budget procedures in order to transfer

focus from inputs results. In recent years, a number of African countries have also decided to

implement programme based budgeting (PBB) to adopt a results based approach to budgeting and

away from the traditional line item approach. What has triggered these reforms? In an OECD study2,

the major reform motivators were listed as financial crisis, pressure to reduce public expenditures,

and a change in political administration. In many cases, the reforms were introduced as part of a

wider budget reform package seeking to control public expenditure.

The experience of OECD countries and some African countries that have already implemented such

budgetary reforms demonstrates areas of significant success. However, there also remain areas of

significant concern. The successful areas of budget reform would seem to include the reclassification

of the budget and the multi-annual estimates on the basis of programmes or output areas. The areas

that remain a challenge tend to include the use of performance information in the budget process, the

alignment of programmes with the administrative structure and the presentation of performance

information in budget documentation3. As one example, the Audit Office of France recently published

a report that reviews the current status of the implementation of the organic budget law (LOLF) of

August 1, 20014. The review of the use of programme budgets points to real difficulties that have

been encountered by way of the poor alignment of the administrative organisation with

programmes.

In the case of budget reform towards the full adoption of PBB in developing countries, many are

currently grappling with how to design and implement these reforms. It is important to consider the

current status of the PFM and governance systems. Developing countries can also benefit from the

lessons learned from the experience of OECD countries. It has been argued that PBB reform should

not be considered in countries or states with weak public finance management (PFM) and

governance systems5. The limited capacity, weak financial administrative networks along with weak

PFM and governance systems all point to ensuring that a number of PFM performance standards

have been met prior to initiating PBB reform. Once pre-requisites have been established as met, it is

important to implement a reform with a schedule based upon appropriate sequencing and roll out.

2 Performance Budgeting in OECD Countries, 2007

3Programmeme Budgeting in OECD Countries, Dirk-Jan Kraan, Budgeting and Public Expenditures Division of

the Public Governance and Territorial Development Directorate of the OECD. 4 For a summary extract of the report see http://blog-pfm.imf.org/pfmblog/2012/02/implementation-of-the-

lolf-in-france-a-thwarted-ambition.html 5 A Basic Model of Performance-Based Budgeting, Marc Robinson and Duncan Last, International Monetary

Fund, Fiscal Affairs Department, 2009


In this paper, a model, based upon the application of PEFA6 scores, is used to assess whether

adequate pre-requisites have been met to implement PBB in a given country. Further, it provides a

framework for sequencing budgetary reforms. The case is made for adopting a gradual approach to

the implementation of PBB reforms in contrast to a big bang approach. The starting point to the

reform of PBB, as in any reform, should be a comprehensive assessment of the current status of

strategic planning and monitoring and evaluation; public finance management, the capacity, the

available resources, the status of the financial administrative network, the political economy and the

macroeconomic context. The PEFA Assessment provides a sound basis to asses PFM performance.

The assessment of the current status of strategic planning and monitoring and evaluation does not

have any standardised widely accepted assessment tools so countries may have to rely on a more ad-

hoc approach.

1. A Simple Model for Programme Based Budgeting (PBB)

Programme Based Budgeting (PBB) is a budgeting approach that manages public resources through

specified programmes implemented to achieve desired policy objectives. It provides a basis for

directly linking strategic planning to budget implementation and consequently achieving desired

results. The strategic planning process is structured by way of sectors, prioritised programmes and

activities and constrained by firm realistic envelopes. Through a linkage between programme goals

and measured outcomes, it guides strategy implementation towards desired policy objectives. The

PBB approach facilitates a direct selection and implementation of priority programmes within a

budgetary framework consistent with the strategy. In this way, it directly incorporates a

government’s policy objectives, as reflected in its national development framework and

corresponding sector strategies, into its budget formulation, implementation and outturn reporting.

The programme based approach is characterised by a budget classification that reflects four main

dimensions: functions, programme, administrative and economic classification. For the purpose of

simplification, this can be reduced to fewer dimensions either by way of employing mapping tables

or aligning programme and administrative classifications7. The PBB approach is therefore directly

reflective of a results chain that links inputs to specified outputs and outcomes through specified

programmes.

For the purposes of clarity, it is useful to state what is meant by the term programme as applied in

this paper. A programme is a collection of activities or projects intended to contribute to a common

set of outputs and consequently outcomes. The programme is an independent budget structure

specified so as to achieve at least one output that contributes to one or more sector outcomes. There

is a hierarchy of programmes, sub-programmes and activities (current expenditure) and projects

(investment expenditure). While programmes are principally a functional specification, their

6 Public Expenditure and Financial Accountability Performance Measurement Framework, PEFA Secretariat,

2005 7 For purposes of simplifying implementation some countries reduce the number of dimensions to three by

aligning the administration with either the functional or programme dimension. For example in the case of

South Africa the administration and programme dimensions are aligned.


implementation requires a direct institutional mapping of programmes to the administrative

structure8. Accountability considerations dictate that each and every programme requires a

programme manager. Personnel costs along with other recurrent activity costs and project costs

should be assigned to programmes. Therefore, the institutional arrangements supporting PBB must

accommodate a linkage, directly or indirectly, between programmes and administrative elements.

The programmes serve to deliver sector outcomes. Consequently, there is also a requirement to align

the administrative elements with sectors or functions. For many countries, the COFOG standard

(classification of functions of government) is adopted with linkages made using mapping tables.

Figure 1 is a schematic representation of the direct results chain linkages between strategic planning,

budget formulation and budget implementation. The figure illustrates how the PBB approach serves

to implement the results chain and provide a feedback mechanism at the levels of measured resource

allocations, achieved outputs and outcomes to refine budget formulation targets (on an annual cycle)

and also to refine strategic planning policy objectives. Clearly, the PBB approach provides a direct

way, if successfully implemented, of achieving policy objectives. Such a budgeting approach provides

a straightforward mechanism by which a government can, on an informed basis, make decisions

about the efficacy of the allocation of its scarce resources and determine whether policy objectives

are being met or not. Further, the direct alignment of resource allocation to policy and service

delivery outcomes enhances transparency and accountability, thus improving overall economic

governance.

Figure 1: Result Chain Linkages between Strategic Planning, Budget Formulation and Budget

Implementation for Programme Based Budgeting

8Pragmatism sometimes tends to ignore this step. For example France preferred to retain the administrative

organization that existed before the LOLF, rather than modify the organizational charts and responsibilities of

the ministries, to better reflect public policies. This pragmatic choice, vindicated in the early years of the

reform, has in the long run diminished the links between programmes and outcomes.

Multiyear

Budget

Estimates

Budgeted

Sector

Programs

Sector

Program

Targets

Desired

Sector

Outcomes

Program

Budget

Releases

Programs

Executed

Achieved

Program

Outputs

Achieved

Sector

Outcomes

Financial Reporting Monitoring and Evaluation

Realistic

Forecasted

Inputs

Planned

Prioritized

Programs

Planned

Program

Outputs

Desired

Policy

Outcomes

Strategic Plan

Results Chain

PBB Budget

Formulation Results

Chain

PBB Budget

Implementation

Results Chain


In contrast, traditional Line Item Budgeting approaches are limited to allocating resources

administratively and economically and merely monitoring the utilisation of inputs. While a

considerably simpler budget formulation, implementation and outturn monitoring approach than

PBB, any linkages to desired policy outcomes are only indirect. In addition to inputs, the PBB

approach facilitates the monitoring of results, which may be policy outcome objectives or routine

public service outputs.

2. The Impetus for Adopting PBB in Developing Countries

PBB, when implemented successfully, has a number of important advantages. These include:

� Facilitating an effective and productive policy debate both within and without government;

� Facilitating a way by which a government can make informed decisions about the efficacy of

the allocation of its scarce resources;

� Allowing all stakeholders to assess whether policy implementation is consistent with

Government’s strategic objectives, and permitting a ready analysis as to the degree of

commitment to such cross cutting issues as poverty reduction and gender balance;

� Motivating programme managers and service-providers to improve performance as well as

holding them accountable for service delivery outcomes;

� Promoting high quality, client-responsive public services and maximising value for money in

service delivery

� Identifying the causes of good and bad performance and hence reducing waste and increasing

impact, and so thereby improving the value for money of public spending and enhancing

economic development; and

� Permitting development partners to assess progress on particular outcomes aligned with

policy support areas.

With such promise held for achieving development objectives and improving economic governance,

it is hardly surprising that there is a push for countries to move away from traditional budgeting

approaches, which merely emphasise control and the monitoring of inputs, and seek to adopt

programme based budgeting approaches. This promise has already led a number of developed

countries, such as Canada, Denmark, the United Kingdom, Australia, New Zealand and the United

States, to adopt Programme Based Budgeting. And indeed a number of countries and states in Africa

are currently adopting PBB. These include Botswana, Ghana, Kenya, Burkina Faso, Mali and Lagos

State. The adoption of PBB by South Africa and Mauritius are often cited as two successful cases in

Africa that a number of countries wish to emulate.

3. Undertaking PBB Reform with Caution

In the case of developing countries, the international donor community has been a major driving

force behind these PBB reforms. WAEMU (West African Economic and Monetary Union), with


extensive technical assistance from the IMF specifies a programme based approach to be adopted by

its eight member countries9 (Benin, Burkina Faso, Ivory Cost, Guinea-Bissau, Mali, Niger, Senegal, and

Togo). In 2010, the IMF and the EU made Botswana’s adoption of Medium Term Expenditure

Framework (MTEF) and PBB conditionalities for loan and budget support disbursements. Ghana in

2010 amended its GIFMIS (Ghana Integrated Financial Management Information System) Project10 to

include introducing PBB to satisfy IMF funding conditionalities. Experience with other PFM “new

public management” reform initiatives that have also held great promise, such as the introduction of

medium term expenditure frameworks (MTEFs) and accrual accounting, have not delivered on their

promise when applied to a number of developing countries11. The experience in the introduction of

other new public management reform initiatives suggests that developing countries exercise a

degree of caution in undertaking PBB reform.

PBB places very significant burdens particularly on budget execution where the number of

institutional elements involved may extend horizontally across dozens of ministries, departments

and agencies, and vertically down to possibly many thousands of service delivery units. The degree of

decentralisation or deconcentration matters as to the likelihood of PBB implementation success. This

is a particularly important consideration in the case of developing countries undergoing budgetary

reform where capacity constraints can be quite considerable. Further the limited devolution of

expenditure management away from the centre that characterises many developing countries (either

through decentralisation or sector de-concentration) has resulted in acute budget implementation

challenges. This is due to the very long expenditure management pathways between the central

ministry through the sector ministry headquarters, regional or provincial offices, district offices and

finally to the frontline service delivery units. These very long expenditure management pathways are

typically plagued by the limitations of weak financial administrative networks – the banking

network, the postal systems, the communication networks and in some cases even electricity supply.

To illustrate the distinction that may occur as a result of different levels of decentralisation on

expenditure management, we note that South Africa, that is viewed to have successfully implemented

PBB at the national level, reports approximately 7%12 of its budgetary outflows to be classified as

expenditure, the balance being transfers. This compares to Ghana, a country currently undergoing

9 Between 2008 and 2009, Fiscal Affairs Division of the IMF provided technical assistance to the WAEMU

Commission to revise the Union’s six PFM directives. As a consequence a new directive on transparency was

adopted by the WAEMU Council of Ministers in 2009. The new directives incorporate modern PFM approaches

including programme budgeting, medium-term budget and expenditure frameworks (MTBF/MTEF), and

accrual accounting. 10 The GIFMIS Project, Proposal to Danida for Providing Funding to the GIFMIS Project, 2010 states “In the

original conception of the GIFMIS Project no firm decisions had been made about introducing Programme

Based Budgeting (PBB) within the current package of PFM reforms”. 11

A Review of Experience in Implementing Medium Term Expenditure Frameworks in a PRSP Context: A

Synthesis of Eight Country Studies, by Malcolm Holmes with Alison Evans, Overseas Development Institute,

London, 2003 12 See South Africa PEFA Assessment, 2008


reform of its budgetary systems towards a PBB approach, which reports approximately 75%13 of its

budgetary flows to be classified under expenditure management. These distinctions matter when

PBB reforms are considered and lead to different levels of challenge with respect to budget

implementation under a PBB regime.

It is of some interest to note that small island states are not faced with the challenges of very long

expenditure management pathways even where expenditure management remains highly

centralised. This observation suggests that small island states may be faced with significantly less

difficulties with respect to the challenges that PBB places on budget execution. The same argument

may be applied to federal systems.

4. Criteria for Assessing PBB Reform as Successful

The value of adopting a particular budgeting approach should not just be solely guided by its promise

of better policy implementation, transparency and accountability. A more appropriate test of the

merit of a particular choice of budgeting approach should also be based upon the credibility of the

budget that can be reasonably expected to be achieved by a country given its current performance

status of strategic planning and monitoring and evaluation and public finance management. If the

credibility of a budget process is the criterion by which the success of a particular budget approach is

measured, then the PBB reforms being currently undertaken by a number of countries shall remain

more promise than actual achievement of an effective budget process.

Such credibility can be measured by considering (1) the effective matching of comprehensive

budgetary resource allocations in accordance with strategic objectives and development plans, (2)

achieving in budget implementation outturns (i.e. expenditure, outputs and outcomes) that match

budget allocations and targets; and (3) achieving accurate, regular and timely measures of

expenditure, outputs and outcomes.

5. Transitioning from Line Item Budgeting to PBB

A comparison of the budget management requirements for implementing line item budgeting versus

PBB provides a framework for considering a transition between the two forms of budgeting. By a

consideration of Table 1, it is made apparent that the reform from a traditional Line Item approach to

PBB requires:

� The adoption of a multi-year budgetary perspective to permit the incorporation of strategy

into the budget process;

� A transformation of the institutional arrangements to properly establish lines of

accountability for all of the results chain elements;

13 See Ghana PEFA Assessment, 2009


� An expansion of the dimensions and scope for budgetary releases and expenditure controls

while transforming from input control (principally dictated by the ministry of finance) to

output control (left primarily in the hands of the sector ministries);

� A reconfiguring of the chart of accounts for financial reporting on the basis of all four

classification dimensions; and

� Setting up effective, accurate and timely monitoring systems for measuring and evaluating

outputs and outcomes.

The table further demonstrates the magnitude of the difference in complexity of managing a budget

that is based on the programme based approach compared to one based on a Line Item Budget. There

are other areas of reforms not captured in Table 1 that must be associated with the introduction of

PBB. These include the shift to a greater focus on performance based auditing and the need for a

more complete measure of resource allocation as might be achieved through the introduction of

accrual accounting.

Table 1: Comparison of budget management requirements for implementing Line Item

Budgeting versus Programme Based Budgeting

Line Item PBB Line Item PBB Line Item PBB Line Item PBB Line Item PBB

Administrative ��

Economic ��

Program ��

Functional ��

Program ��

Functional ��


Economic ��

Program ��

Functional ��

Classification

Dimension

Inputs

Outputs/

Outcomes

Results Chain

Element

Institutional Lines of

Accountability Monitor

Estimate/

Allocate Control Financial Report

Multi-year

Perspective

6. PBB Reform Experience

A number of countries have successfully made the transition from Line Item Budgeting to PBB. These

include Canada, Denmark, France, Singapore, the United States, New Zealand, Australia, South Africa

and Vanuatu. The experience with introducing PBB in practice has been mixed and varied. Sri Lanka

first introduced PBB in 1969 and in spite of early gains; this reform effort did not yield positive

results. Singapore transitioned from Line Item Budgeting to Programme Based Budgeting between

1978 and 1989 using a more gradual approach that has largely delivered on its promise.

Mauritius introduced an indicative programme-based budget alongside the traditional line-item

budget in 2007-08 as a starting point. Subsequently, a fully-fledged programme-based budget set

within a three-year MTEF (2008/09 to 2010/11) was implemented in the budget year 2008-09. The

accelerated PBB implementation may have resulted in some respects to be a simple change in budget


presentation rather than a true integration of policy budgeting. It is important to note that prior to

implementing PBB Mauritius already had successfully implemented a computerized financial

management system.

In the case of South Africa, the institutional arrangements of government reflect the programme/sub-

programme structure and so permit clear lines of accountability for delivering on the budgetary

programmes. It should be noted that there is very close alignment if not coincidence of the

programme structure with an administrative structure. The advantages include relative simplicity,

and the facilitation of the incorporation of posts directly into programmes. The disadvantages

however appear to be a pressure to institute new administrative structures with the introduction of

new programmes, and the special challenges that are sometimes presented in defining meaningful

output and outcome indicators. In the case of South Africa, as was the case for Mauritius, it is also

important to note that it has a strong computerised financial management system.

Mali has expressed its intention to move forward and have its result-oriented budget fully

operational between 2012 and 2015, in line with WAEMU legislation. Burkina Faso has moved

towards PBB since 2000. It intends to add a result-oriented budget appendix to the draft budget for

2013 and to transmit it to the Parliament as additional information.

Experience seems to suggest that:

� A more gradual approach, one that incorporates careful sequencing, appears to be an

important element of PBB reform success.

� The corresponding institutional reorganisation to accommodate PBB is an important

element for effective PBB

� The support of political and administrative leaders is vital for reform implementation

� Strong PFM systems including the successful implementation of computerized financial

management systems are an important factor.

7. Considering an Appropriate Approach to Introducing PBB Reform

In considering the introduction of PBB reform, as is the case for many other areas of Public Finance

Management (PFM) reform there are a number of distinct elements to be addressed. These are:

� The current status of budgetary performance. A minimum performance level in planning and

monitoring and evaluation, as well as PFM must be met.

� The sequencing of reform steps dictated by broad reform platforms and functional inter-

linkages;

� The roll out of the reform steps both horizontally across the different sectors and vertically

through the levels of sector headquarters, regional or provincial offices, district offices and

frontline service delivery units;


� The current levels of capacity, including the status of the financial administrative network;

� The resources available for carrying out the reforms;

� The political economy and macroeconomic contexts; and

� The institutional arrangements set up for managing the reform efforts

Adopting a model for the achievement of sound PFM performance to be the measure of fiscal

discipline, the strategic allocation of resources and efficient service delivery achieved affords us a

basis for defining platforms platform focus for reform sequencing14. We specify a platform sequence

to be (1) the achievement of fiscal discipline, next (2) the achievement of efficient service delivery

and then (3) the strategic allocation of resources. This sequencing rationale suggests that PBB which

is associated with the strategic allocation of resources should be pursued only when fiscal discipline

and efficient service delivery are sufficiently functional.

8. Sequencing of PBB Reforms

PBB reform requires the introduction of a programme based budget classification and corresponding

transformation of the institutional arrangements of public administration away from administrative

heads to programme managers.

Instituting a new budget classification, as is required of PBB reform, constitutes a fundamental

structural change to the budget process. It implies revisiting the budget release structure; a virement

based upon programmes rather than based upon an economic classification; a commitment control

based upon programmes and an in-year budget reporting also based upon programmes.

Accommodating these fundamental changes suggest that a number of related areas of PFM must also

concurrently be reformed even where such areas are currently functioning well. This therefore

makes it a requirement that sequencing be considered very carefully when PBB reforms are

intended. Further, it suggests that a gradual approach may be more productive than a big bang

approach as the inter linkages between PBB and other areas of PFM are accommodated. This

approach indeed is supported by the PBB reform experiences of such countries as Canada and

Singapore for which reform was sequenced over periods close to a decade.

A careful consideration of sequencing and roll out requirements necessary for PBB reform identifies

three main phases to be addressed. These are presented below in sequence:

1. The first phase focuses on strengthening of basic PFM systems to ensure that sufficient PFM

performance has been achieved. The PEFA Assessment tool provides a basis to both guide

the sequencing of PFM reforms as well as identify at what point sufficiently robust basic PFM

systems have been achieved to undertake the next phase.

14

On the PEFA Reform Sequence Model Framework, Ronald Quist, submitted to AIDCO, European Commission,

2009


2. The second phase focuses on the creation of a PBB reform enabling context. These reform

steps may be guided by a consideration of the requirements to transition from line item

budgeting to PBB. We note that the creation of PBB enabling environment includes

introducing computerised expenditure management15 and the institution of a treasury single

account. The successful implementation of this phase can facilitate the implementation of a

programme informed budget process that guides the allocation of resources between sectors

on the basis of measured results.

3. The third phase focuses on the actual implementation of PBB with a reform of the

institutional arrangements for budget management and the introduction of a programme

based budget classification. The reform of the budget formulation, budget execution and

financial reporting is guided by a sequencing rationale based upon the PFM linkages. The

technique involves identifying activity chains that represent the PFM linkages, and

sequencing the reforms by starting with the shortest activity chains and progressing to the

longest activity chains.

8.1 Strengthening of PFM Systems – a Prerequisite to PBB Reform

The first step to undertaking PBB reform is strengthening the PFM systems; especially those areas of

PFM that serve as prerequisites to successful PBB implementation. What prerequisites are necessary

for the successful implementation of PBB? Is there as way to determine with reasonable reliability

whether implementing PBB is technically and operationally feasible?

The pre-requisites for the successful implementation of PBB may be categorised under (1) planning

and monitoring and evaluation, (2) budget formulation, (3) budget implementation and (4) financial

reporting. These pre-requisites refer to the achievement of adequate performance levels. The PEFA

Assessment, which as of mid-2011 had been carried out in over 93% of Sub-Saharan Africa16, serves

as a source for measuring the current levels of PFM performance. The pre-requisites are listed out

below. In each case, where available, the corresponding PEFA performance sub-indicators are listed.

The minimum scores applied are based upon a consideration of the requirements necessary to

achieve a particular PEFA sub-indicator score and the minimum PFM performance requirement

necessary to implement PBB. To draw conclusions on PFM performance both the indicator score and

the accompanying narrative should be considered.

� The achievement of fully costed (investment and forward linked recurrent costs) strategies

by an effective debt management strategy prioritised within firm reliable fiscal resource

15

It is important to distinguish a number of currently implemented IFMIS systems that are better characterized

as computerized payment systems rather than expenditure systems (see for example, Liberia). The distinction

is that an expenditure management system would include effective control of commitments (which occur at the

level of spending units) rather than simply controlling the payment component of the expenditure cycle which

may be addressed centrally. Successful programme based budgeting relies upon PFM systems being able to

align expenditure with budgeted activities and projects. This in turn requires effective commitment control. 16

Evaluation of PEFA Programmeme 2004 – 2010 and Development of Recommendations beyond 2011 Final

Evaluation Report, by Andrew Lawson and Alta Folscher


forecasts guided. A measure of performance may be obtained by considering PEFA sub-

indicators PI-12(i), PI-12(ii) and PI-12(iii) ;

� The implementation of a credible monitoring and evaluation framework to cover all of the

key sectors. There are no direct measures of the credibility of monitoring and evaluation

included in the PEFA Assessment but some indication may be available from planning and

sector reports.

� A credible multi-year macro-fiscal frame which can serve as an effective instrument of top-

down budgetary discipline and whose effectiveness is not undermined by large

unpredictable subsidies and donor flows(see PI-12(i));

� A credible budget process that results in close matches between expenditure outturns and

budget estimates for revenue and aggregate and sector expenditure. In particular, it is

important that the PFM systems are capable of effectively curbing the accrual of expenditure.

High levels of expenditure arrears undermine a forward perspective on budget

implementation as is required by PBB and the achievement of policy outcomes and mires

budget implementation in the reconciliation of past contracts (see PI-1, PI-2, PI-3, PI-4(i) and

PI-4(ii)). Where there is substantial donor participation in the budget the integration of

programme and project aid into the budget becomes very important to the PBB process (see

D2 (i), D2 (ii));

� The budget classification must reflect at least administrative and economic classifications

(PI-5);

� A budget preparation process with adequate time to fully reflective of bottom-up inputs that

reflect service delivery requirements and integrates political consideration at the beginning

of the budget preparation cycle(see PI-11(i), PI-11(ii));

� A budget release mechanism with a sufficient horizon to effect an effective commitment

control across all spending units, effective debt management, sound public procurement and

payroll management(see PI-16(i), PI-16(ii)), PI-20(i), PI-17(i), PI-17(ii), PI-18(i), PI-18(ii),

PI-18(iv), PI-19(i), PI-19(ii);

� An effective focus on output control of expenditure by the sector ministries rather than input

control by the finance ministry. To meet this standard almost certainly requires the

implementation of computerised financial management systems with complete coverage of

expenditure and the capacity to monitor expenditure down to the level of the service delivery

units (see PI-23);

� The accurate and timely in-year financial reporting of budget implementation as well as the

preparation of comprehensive, accurate and timely financial statements (see PI-24(i), PI-

24(ii), PI-24(iii), PI-25(i) and PI-25(ii));

� The assurance of sustained effectiveness, accuracy and timeliness of these systems through

effective risk management and systems audit (see PI-21(i));

� Effective external scrutiny and audit (see PI-26 (i), PI-26(iii)) and PI-28(i));


� And effective policy debate and oversight by the parliament with approvals made prior to the

start of the fiscal year (PI-11 (iii), PI-27(i)).

An analysis of whether a country has met the minimum PFM performance level, based upon the

criteria listed above and using the PEFA scores was performed on seven countries and one state. This

was selected on the basis of their having adopted programme based budgeting (or performance

based budgeting) or are currently grappling with doing so. The seven countries are South Africa,

Mauritius, Norway, Botswana, Ghana, Mali and Burkina Faso; and Lagos State. The results of the

analysis are presented in Appendix 1. A summary extract of the results is presented below in Table 2.

Table 2: Summary Results of Analysis for Meeting Pre-requisites for PBB Implementation

The results suggest that Mauritius, Norway and South Africa substantially meet the pre-requisites to

successfully implement PBB. Out of 32 pre-requisites, these countries meet between 25 and 28. In

contrast, the analysis suggests that Burkina Faso and Botswana, with 17 to 19 out of 32 pre-

requisites met, have considerable strengthening of their basic PFM systems yet to be undertaken

before initiating PBB reforms. Botswana is currently designing a PFM reform programme. It is

recognised that many pre-requisites must first be met and so the PBB initiative has been sequenced

to start five years into the reforms. Burkina Faso is pursuing a gradualist approach and intends to

move to programme based budget only as an appendix to the 2013 appropriations bill. The analysis

suggests that it would be premature to introduce PBB at this time in the case of Ghana, Mali and

Lagos State. In all three countries, there is some evidence to suggest the timetable for introducing

PBB may be the result of donor pressure. In the case of Lagos State, the PBB initiative is being

supported by DFID through the SPARC programme17. Mali is responding to its treaty obligations

under WAEMU legislative requirements. Ghana did not foresee a PBB reform initiative under its

original GIFMIS project. This was later introduced in response to IMF disbursement conditionality.

17

DFID, through the State Partnership for Accountability, Responsiveness and Capability (SPARC) is supporting

public finance management reform in Lagos State. Under the SPARC Programme a PBB pilot programme was

introduced in 2010.

Number of Pre-requisites for Implementing PBB 32

Number of Pre-requisites met:

Number Adjusted % Remarks on Adjusted Figures

Mauritius 2011 27 27 84%

Norw ay 2008 27 28 88% It may be argued that PI-21(i) applied to Norw ay is inappropriate

South Africa 2008 26 28 88% Given the very small amounts of donor aid D2(i) and D2(ii) scores may not be critical

Mauritius 2007 25 25 78%

Burkina Faso 2010 19 19 59%

Botsw ana 2008 17 19 59% Given the very small amounts of donor aid D2(i) and D2(ii) scores may not be critical

Ghana 2009 10 10 31%

Mali 2010 9 9 28%

Lagos State 2008 7 7 22%


8.2 Creating an Enabling Context for PBB

The creation of an enabling context for the introduction of PBB may be guided by a consideration of

extending traditional line item budgeting through a step of enhancing performance informed

budgeting. Table 3 extends traditional line item budgeting through a step of performance informed

budgeting prior to implementing full blown programme based budgeting. In such an approach,

outputs and outcomes are monitored and used to inform the strategic planning process. Resource

allocations are made on a sector basis. The strategic sector allocations enter budget formulation

through a selection of projects on a functional classification basis – using mapping tables. Budget

implementation remains on a line item basis, but reporting is done on a functional a basis to permit a

comparison of resource allocation by sector against output and outcome achievements.

Table 3: Extension of traditional Line Item Budgeting as a Gradual Reform Approach to

Introducing PBB

Line Item PBB Line Item PBB Line Item PBB Line Item PBB Line Item PBB


Economic ��

Program ��

Functional ��

Program ��

Functional ��


Economic ��

Program ��

Functional ��

Multi-year

Perspective

Results Chain

Element

Classification

Dimension

Institutional Lines of Estimate/ Control Financial Report Monitor

Inputs

Outputs/

Outcomes

Table 3 helps to define a sequence of budget reform steps. These may be introduced under five main

sequenced initiatives: (1) the introduction of effective, politically backed, multiyear fiscal frames to

make effective strategic programme prioritization and to serve as an instrument of top down

budgetary discipline; (2) strengthening strategic planning; (3) strengthening monitoring and

evaluation; (4) directly linking sector strategy to the budget based upon a functional classification;

and (5) executing the budget and generating financial reports on the basis of a functional

classification. These are detailed further in the sections below.

1. Introduce effective multi-year forecasts of fiscal aggregates, with full political backing, to

inform the resource envelopes applied to strategic planning as well as to serve an instrument

of budgetary top down discipline. Introduce sector Forward Spending Estimates to facilitate

the incorporation of sector baselines in the macro-fiscal forecasts. Fiscal forecasts must be

comprehensive to include revenues, expenditures and transfers as well as net borrowings. A

reliable net borrowing profile in turn requires the strict adherence to a politically backed

debt strategy. While this may seem like a basic step there are very many challenges that

developing countries face in respect of achieving effective politically backed fiscal frames.

For a number of countries aid represents a very significant proportion of the budget and may


be as high as 40% to 50%. Such aid is tied to conditionalities, some related to governance

criteria and outside the control of public finance management efforts. The upshot of this is

that donor aid flows are not predictable. There is some sensitivity to this problem. For

example the European Commission incorporates both a front loaded fixed tranche and

smaller variable tranches that are tied to conditionalities. But while such an approach may be

effective in respect of single year fiscal forecasts, it does not really help much in the case of

three year forecast horizons. Another challenge to developing countries achieving this first

basic step to the implementation of PBB is the high level of unpredictable, volatile subsidies

that are included in the budget, and thus undermine predictability in expenditure applied to

service delivery and development outcomes. In spite of this threat to sound PFM, the subsidy

problem is highly political especially in a poor country and any threat of removal can lead to

social upheaval18. Political economy dynamics may not permit anything but a gradual

achievement of this very first step to extending line item budgeting to facilitate a PBB

enabled context. Just achieving this step can place years on the schedule of successfully

introducing PBB reform.

2. The next step to instituting a PBB reform enabling context is to strengthen strategic planning

both at the national and sector levels and specify by sector output and outcome targets. It is

desirable to cover at least the major sectors – health, education, roads and transport,

agriculture. The approach typically involves a pilot programme with one or two sectors and

then rolling the process out to the rest of the sectors. This process may take three to four

years. Strategic planning depends on an effective prioritisation of programmes. This, in turn,

requires that a firm and realistic fiscal forecast capability has been previously achieved. The

experience in a number of developing countries and states is for donors to focus on specific

sectors and to make the preparation of Medium Term Sector Strategies (MTSS) a

conditionality for continuing support. However, if there is a simultaneous introduction of

strategic planning at the sector level prior to realistic fiscal forecasts having been achieved,

then at best these are merely exercises in capacity building and cannot be expected to

contribute effectively to the achievement of desired sector policy outcomes. In some cases

their early introduction can be counterproductive where strategy estimates bear little

relationship to the budget and leave the impression with officials that these are merely steps

to satisfy donor demands to ensure that funds continue to flow, rather than recognising the

process, when applied correctly, as a powerful mechanism for supporting development.

3. Tied closely with strengthening strategic planning is the strengthening of monitoring and

evaluation to measure actual output and outcome achievements. This component of creating

a PBB enabling context is not critically dependent upon either the development of effective

multi-year fiscal frames or strategic plans so should be started as early as is practicable. The

18 The removal of petroleum subsidies in Nigeria in January, 2012 led to riots and threats to shut down the oil

industry through strikes. The government was forced to reinstate 50% of these subsidies.


outcome indicators commonly involve sophisticated statistical sampling and the

establishment of baselines and so this process can take at least several years.

4. The next step is the direct linkage of policy to the budget. This requires that both effective

politically backed multi-year fiscal frames and effective strategic planning have first been

achieved. If so, then the country can introduce a multi-year perspective on a rolling annual

basis to budgeting by linking multi-year forecasts to budget ceilings. Further, it can link

budgets to sector plans on a sector basis using functional mapping tables, based upon a

prioritised selection of projects and available fiscal space; and taking into account

investment costs as well as forward linked recurrent charges.

5. Next, budget execution can be reformed to reflect a functional structure in line with the

budget formulation and strategic planning structures. This may be reflected in the structure

of budget release, and also in the organisation of financial reports. In anticipation of the layer

of complexity imposed upon budget execution and financial reporting by the introduction of

PBB, it is necessary to introduce computerised expenditure management and a treasury

single account to effectively manage budget releases.

8.3 Undertaking Core PBB Reforms

Going through these five steps listed above to prepare a PBB enabling reform context will take at

least several years and could be as long as a decade depending upon the political economy – both

with respect to country political commitment to reform, as well as development partner practices

with respect to participation in the budget process. The schedule of implementation will of course

also depend upon capacity and resource constraints. Once these steps have been achieved, the core

elements of PBB can be considered and the proper work of a PBB reform started upon. This requires

a consideration of the sequencing and roll out requirements. The sequencing rationale is based upon

PFM linkages that are impacted by the introduction of a programme based budget classification.

These include:

1. The first step of the core PBB reform process is the review of the legal and regulatory

framework centered on the budget law and possibly introducing a fiscal responsibility act. It

requires a realignment of related regulations, manuals and reporting formats. For example in

Mauritius the implementation of a fully fledged operational PBB was preceded by the

enactment of the Finance and Audit (Amendment) Act 2008; the enactment of the Public

Management Debt Act 2008; accompanying changes in the Financial Management Manual

(FMM).

2. The second step involves operationalising the law. This step includes the reform of the

institutional arrangements for managing a programme based budget. For some countries, this

may include first integrating separate budget divisions – recurrent budget and development

budget into a single budget division. These institutional changes must be rolled out to all


sector ministries. The reform of the institutional arrangements for public administration is to

accommodate the designation of programme managers to be held accountable for delivering

on programme results. Pragmatic considerations require that this step aligns closely with the

existing administrative organization. However, on the other hand, too timid a reform

initiative with respect to aligning the administrative structure to accommodating clear lines

of accountability for programme managers can lead to a PBB implementation that merely

reflects a PBB classification but in essence does not transition from an inputs focus to a

results basis.

3. The third step addresses restructuring the budget systems and procedures to accommodate

PBB. We note that the implementation of the core PBB reform is typically implemented on the

basis of a pilot project involving two or three ministries, and then based upon lessons

learned, rolled out to other sector ministries over a period that can take several years. Given

that, the reform of systems and procedures must adopt an approach that accommodates both

the current and reformed budget systems. This step begins with a reform of the Chart of

Accounts. Many countries adopt a COFOG/GFS standard. This standard accommodates both

cash and accrual accounting standards. The chart of accounts will reflect administrative,

economic, functional and programme classifications and may incorporate well over a dozen

segments. The subsequent degree of transaction codification complexity makes it particularly

challenging to manage accounts manually. And yet, something often ignored is that in

developing countries (excepting small island states and federal systems) even where

computerised expenditure management have been successfully implemented, they do not

cover all spending units. It requires that a simplified chart of accounts that can compile

transactions consistently at least at an aggregate level be also specified. This step also entails

redesigning the payroll ledgers to permit integration into the general ledger on a programme

basis.

4. The fourth step entails redesigning the formats of the budget documentation budget call

circular, monthly and quarterly expenditure returns, and the annual financial statements. It

will also include revisiting the classification basis for pro-forma cash flow requests by sector

ministries, procurement plans, and warrants or authorities to incur expenditure.

5. The fifth step, which represents the first implementation step, looks to address the budget

release procedures to permit the timely release of resources on a programme basis, rather

than on an administrative/economic classification basis. With a treasury single account in

place, the transformation from an administrative/economic classification of sub-accounts to

an administrative/programme classification is made more straightforward. These steps along

with the implementation of a chart of accounts that reflects a programme classification,

facilitates a basis to reflect budget virement and budget releases based upon programmes

rather than economic classifications. To assure that budget releases are expended as per


budgetary intent and in accordance with specified programmes, this step also entails the

implementation of commitment control systems based on programme and sub-programme

head rather than administrative and economic head. Where a previously implemented

computerised expenditure management system does not cover a substantial majority of non-

salary expenditure, this introduces a very severe challenge.

6. The sixth step must be closely coordinated with the previous step. It involves the issuance of

a budget call circular that specifies sector and programme ceilings and does so timed in a way

to assure that the PFM systems can manage budget releases and control on the basis of a

programme classification in the fiscal year for which the budget circular corresponds.

7. The seventh step entails introducing in-year and annual financial reporting based upon a

chart of accounts that incorporates the PBB classification; and

8. The final step, once PBB is implemented is to reform audit to include performance based

approaches and techniques.

9. On the Time Required and Scheduling of PBB Reform

Clearly, from the considerations outlined in the previous sections, the time required to successfully

implement PBB successfully, very much depends upon a country’s current status of PFM

performance, and what steps it has already put in place towards creating a PBB enabling context. The

time required will also be influenced by whether it is a small island state, a federal system or a

country with highly decentralised or de-concentrated expenditure management, or whether it is a

country with a centralised financial management administration. The circumstance is further

influenced by the status of the financial administrative network.

Appendix 2 presents estimates of time requirements to address the different phases of PFM reform.

The table separates estimates for small island states, federal countries or countries with highly

decentralised or de-concentrated expenditure management, and countries with centralized

expenditure management. The estimates are informed by the presumption of a weak financial

administrative network as is the case for many developing countries. The analysis in Appendix two

leads to a very wide range of time scales for PBB reform implementation. A summary is presented in

Table 4 below. The time schedules depicted are estimates.


Table 4: Estimates of Time Required for implementing PBB reforms based upon the type of

Political Administration, the Current Status of PFM Performance and the Degree that a

Country has effected a PBB Enabling Context

Total Time Required for PBB Reforms

Small Island State Federal /

Decentralised

Government

Centralised

Government

The Basic PFM systems remain weak 12 to 15 years 12 to 18 years 15 to 25 years

Basic PFM systems are sufficiently

strong

8 to 10 years 8 to 12 years 10 to 15 years

A PBB enabling context has been

effected

5 to 7 years 5 to 7 years 7 to 10 years

The analysis suggests that in the cases of a small island state, if there is sufficient preparation

successful PBB reform implementation can be achieved in a relatively short time. With developing

countries, even where there is sufficient preparation, the sequencing and roll out considerations can

make it a decade’s long enterprise.

Discussion and Conclusions

While Programme Based Budgeting (PBB) provides the promise of markedly improved decision

making, effectiveness, efficiency, transparency and accountability in budget management, it does so

only when it is successfully implemented. The experience of OECD countries, as illustrated by the

example of France, while achieving part of the promise, has not fully achieved expectations even after

over a decade of implementation. Lessons to be derived suggest that great caution be taken in

deciding upon whether a country should undertake PBB reform, and how it should do so. It is well

recognised that PBB reform is only appropriate where sufficient PFM performance and governance

has been achieved. This paper demonstrates that the PEFA assessment provides a basis for

determining if a country meets the pre-requisites to undertake PBB reform. The analysis appears to

well discriminate between countries that have successfully implemented PBB reform in Africa, and

those that are grappling to do so.

Three main sequencing phases are identified. The first phase seeks to strengthen basic PFM

performance. The second phase seeks to create an enabling context for the implementation of the

core PBB functions. This phase is guided by a process of enhancing performance informed budgeting.

The third phase introduces the core PBB functions. The sequencing of which is guided by PFM

functional linkages.

Beyond identifying whether or not it is premature to undertake PBB reforms, the analysis presented

suggests that careful sequencing and roll out considerations must be made. Such sequencing adopts a

two-tier approach. The first tier is guide by an expansion of the Line Item Budget approach to

accommodate a multi-year fiscal perspective and a functional budget structure, even if merely

carried out on a mapping basis, to better link the selection of projects within sector strategies and


budgets. This provided of course that care is taken to reflect recurrent cost implications of the

projects. This tier may be characterized as one seeking to create an enabling environment to

successfully launch PBB.

Once that is achieved, the analysis identifies PBB reform as foundational, given the need to introduce

a programme classification that requires revisiting many elements of PFM practice. This warns

against the narrow view of PBB reform that some countries adopt, which focuses principally on a

redesign of the Budget Call Circular and possibly a modification of the Chart of Accounts. The

linkages between the budget formulation, budget execution and financial reporting, especially strong

in the case of PBB points to a consideration of activity chains to be a productive method for

sequencing19. This suggests a gradual approach to PBB reform even where the pre-requisites of

sufficient PFM and governance performance levels have been met. In practice, this easily translates

into a decade or so for PBB reform implementation. The experience of a number of OECD countries

bears this out. This questions the rationale for making PBB reform implementation a conditionality

of donor aid and loan disbursements covering a period of five years or less.

In discussing sequencing, it is worthwhile to be reminded that sequencing and prioritising are not

the same, and their respective consideration often leads to completely different ordering of reform

steps. Many elements of the “new public management” such as MTEF, PBB, and Accrual Accounting

are often toted as priorities in budgetary and financial management reform and so are made the early

focus of reform. Such a perspective is prudent only if the proper sequencing is applied. Proper

sequencing considerations would pace these priorities towards the back of a sequenced schedule.

In the consideration of sequencing, it is important to take into account, in addition to the length of

activity chains that serve as a measure of reform effort, and a guide to order reforms starting with

shorter activity chains and graduating to longer ones, the roll out requirements both horizontally

across all sector ministries as well as vertically down through the levels of the headquarters, regional

or provincial offices, district offices and down to the service delivery units. In practice, this often

means dissemination of guidelines and the building of sufficient capacity at all of these levels. There

are particular challenges in developing countries, which are not small island states and have not

undertaken significant steps to decentralize or de-concentrate their expenditure management. The

very long expenditure pathways are further challenged by weak financial administrative networks.

The analysis considered in this paper point to the following conclusions:

� Countries should only undertake PBB reforms if they have achieved sufficient PFM

performance. If a country has not yet met a sufficient PFM performance level, that can add

between three and seven years for it to address the PFM basics. The complexity and burden

placed upon budget execution suggest that a productive approach to the implementation of

19

On the PEFA Reform Sequence Model Framework, Ronald Quist, submitted to AIDCO, European Commission,

2009


PBB is to precede the core PBB reform by creating a PBB enabling context. This approach

facilitates a period of performance informed budgeting. But to embark upon this, it matters as

to how effective and to what degree of political backing there is to a country’s multi-year

fiscal frame. This intermediate phase may take a number of years. This phase of PBB reform,

in anticipation of the complexity of PBB, requires the implementation and roll out of a

computerized expenditure management system, to cover a substantial proportion of non

salary expenditure. Given the requirements for budget release management it also requires

the implementation of an effective treasury single account. With the successful achievement

of a PBB enabled context, a core PBB reform can be undertaken. It requires a reform of the

institutional arrangements and a careful coordination and sequencing of budget preparation

and budget execution reform steps based upon PFM linkage considerations. Such sequencing

is tied to sufficient roll out for each step to be sufficiently implemented to warrant initiation

of the next reform step.

� The implications imposed upon budget execution by implementing PBB, especially given the

weak financial administrative networks in many developing countries, suggests different risk

profiles for different types of country. There can be expected higher risks with countries with

highly centralized expenditure management systems and significantly less so with small

island states, federal administrations or otherwise decentralized or de-concentrated

expenditure management systems.

� PBB should only be taken on if there is the sufficient achievement of effective strategic sector

planning, and monitoring and evaluation.

By way of a final concluding remark; this paper makes the case that given the complexity of PBB,

successful implementation requires a careful assessment of the current PFM performance status, and

an ascertainment of the achievement of a number of key PFM steps and then a gradual

implementation of PBB elements. Given the current status of PFM performance for a number of

African countries, such an argument would suggest excluding many African countries from PBB

reforms for a number of years yet. This in turn would consequently exclude it from the promise of

better decision making, improved effectiveness and efficiency, and greater transparency and

accountability. While there is some truth to that, we should be reminded that it is possible to achieve

a degree of performance informed budgeting through an intermediate reform process of

strengthening public finance management, including a transition to a more medium-term macro-

fiscal budgetary frameworks and a progressive adoption of a more output focused approach to

budget formulation and monitoring. It is worthwhile to note that Botswana maintained its position as

the fastest growing economy in Africa through the eighties, nineties and the first half of the first

decade of the new millennium. It did this on the basis of Line Item Budgeting coupled with an

effective planning process. So it should be possible for countries to start now, make determined and

sequenced gradual steps towards a successful implementation of PBB that may take a decade or

more, and still remain optimistic about delivering on economic development and service delivery

improvements.


References

Marc Robinson and Duncan Last (2009). A Basic Model of Performance-Based Budgeting, Fiscal

Affairs Department, International Monetary Fund.

World Bank (2007). Budgeting and Budgetary Institutions, Edited by Anwar Shah.

Lagos State of Nigeria, PFM Performance Measurement for Period 2006 to 2008, Self Assessment by

Lagos State Government.

World Bank (2010). Mali: Public Expenditure Management and Financial Accountability Review,

Prepared jointly with the Government of Mali and European Union.

Republic of Mauritius, (2009). Manual for Programme Based Budgeting, Budget Strategy and

Management Directorate,

International Monetary Fund (2011). Mauritius: Public Expenditure and Financial Accountability

PEFA (2010). Assessment, Mesure de la Performance du Systeme de Gestion Des Finances

Publiques au Burkina Faso Selon La Methodologie PEFA

On the PEFA Reform Sequence Model Framework, Ronald Quist, submitted to AIDCO, European

Commission, 2009

PEFA Secretariat (2005). PEFA Performance Measurement Framework.

OECD (2007). Performance Budgeting in OECD Countries.

Norwegian Agency for Development Cooperation (2008), Public Finance Management Performance

Report.

European Commission Delegation Botswana (2008). Republic of Botswana Public Expenditure and

Financial Accountability, Public Financial Management Performance Assessment Report.

European Commission Delegation Ghana, (2009). Republic of Ghana Public Expenditure and

Financial Accountability, Public Financial Management Performance Assessment Report.


Appendix 1: Table of PEFA Scores applied to the pre-requisites for the successful implementation of PBB for to seven countries

and one state.

PFM Performance Indicator Pre-Req. Score Status Score Status Score Status Score Status Score Status Score Status Score Status Score Status Score Status

1. Aggregate expenditure out-turn compared to original approved budget A A B X A A C X C X A B X D X

2. Composition of expenditure out-turn compared to original approved budget A A D X B X A C X C X B X C X C X

3. Aggregate revenue out-turn compared to original approved budget A A A A A B X A B X C X D X

4.(i) Stock of Arrears B A A A A N X N X C X A N X

4.(ii) Data Availability B A A A A D X D X D X B D X

5. Classif ication of the budget C A A B A C C C A D X

11.(i) Existence and Adherence to a fixed budget calendar B A C X B A A B B B B

11.(ii) Clarity/comprehensiveness of and political involvement in budget preparation A A A C X A A C X C X B X D X

11.(iii) Timeliness of budget approval by the legislature A D X A A A B X A A A C X

16.(i) Extent to w hich cash flow s are forecast and monitored B A A A A C X D X C X A C X

16.(ii) Reliability and horizon of periodic information to MDAs on commitment ceilings B A A A A D X A C X B D X

17.(i) Quality of debt data recording and reporting A A A B X A B X C X C X B X C X

17.(ii) Extent of consolidation of the government's cash balances B B B A A C X C X C X B D X

18.(i) Degree of integration and reconciliation betw een personnel records and payroll A A B X B X A A A A A A

18.(ii) Timeliness of changes to personnel records and the payroll B A A A A C X B B C X B

18.(iv) Existence of payroll audits B A A A A B B B B B

19.(i) Use of open competition B D X A A D X A D X B C X D X

19.(ii) Justif ication for use of less competitive methods B D X A A B B C X D X B C X

20.(i) Effectiveness of expenditure commitment controls B A A A A D X B C X B C X

21.(i) Coverage and quality of the internal audit function B A B B D X C X B D X A C X

23. Availability of information on resources received by service delivery units B A A A D X B A C X D X N X

24.(i) Scope of reports (coverage and compatibility w ith budget estimates) A C X A B X C X C X C X C X A C X

24.(ii) Timeliness of the issue of reports A A A B X A B X A D X A D X

24.(iii) Quality of information A A A A A C X A C X A C X

25.(i) Completeness of the financial statements B A A A A C X B D X B D X

25.(ii) Timeliness of submission of the financial statements A A A A A A B X C X B X A

26.(i) Scope/nature of audit performed B A B B A B B D X D X A

26.(iii) Evidence of follow up on audit recommendations B B B B B C X B D X B B

27.(i) Scope of the legislature's scrutiny B A B B B C X B A A C X

28.(i) Timeliness of the examination of audit reports by the legislature A A D X D X B X D X C X D X C X C X

D-2(i) Completeness and timeliness of budget estimates by donors A D X A A B X C X C X B X D X

D-2(ii) Frequency and coverage of reporting by donors on actual donor f low s A D X A A C X D X D X C X D X

32 6 5 7 5 22 15 23 13 25

South Africa 2008 Mauritius 2011 Norw ay 2008 Ghana 2009 Botsw ana Mali 2010 Burkina Faso 2010 Lagos StateMauritius 2007


Appendix 2: Table of Estimated Times for the Implementation of PBB Reform Developing Country Context

PBB Reform Phase Small Island State Federal / Decentralized Government Centralized Government

Strengthening Basic PFM Systems 3 to 5 years 3 to 7 years 5 to 10 years

The constrained geographical

spread of spending units limits the

challenges to predictability and

the implementation effective

controls on expenditure

Given that most budgetary outflows are

internal transfers, a computerized

payments system is often sufficient to

meet the sufficient PFM performance

Especially given the weak financial

administrative networks, the very long

expenditure management pathways present

sever challenges to predictability and control in

expenditure management.

Creating a PBB Enabling Context 3 to 5 years 3 to 7 years 5 to 10 years

Achieving an effective, credible multi-year macro-

fiscal frame

This may be complicated by volatile unpredictable subsidies and unpredictable donor disbursements

Achieving effective medium term sector strategies The main challenges are political and tied to volatile unpredictable subsidies and unpredictable donor disbursements

Instituting effective monitoring and evaluation This is less of a challenge if the

geographical range for data

collection is limited

The requirements for monitoring and

evaluation are independent of whether

there is decentralized or de-concentrated

expenditure management.

The requirements for monitoring and evaluation

are independent of whether there is

decentralized or de-concentrated expenditure

management.

Introducing a Treasury Single Account (TSA) Given the limited range of

spending units even a simple

implementation of a TSA can be

highly effective

Given the very high level of internal

transfers versus expenditure, even a

simple implementation of a TSA can be

highly effective.

To institute a TSA with sufficient reach to impact

on the control of expenditure at the level of

spending units

Introducing an effective, rolled out, computerized

expenditure management system (in contrast to

payments system)

Given the limited range of

spending units, a payments system

can be adequate

Given the very high level of internal

transfers versus expenditure, even a

simple payments system may be adequate

To have effective commitment and hence

expenditure control, there must be sufficient roll

out both horizontally and vertically across

spending units to assure that sufficient

proportions of expenditure are effectively

controlled.

Undertaking the Core PBB Reform 5 to 7 years 5 to 7 years 7 to 10 years

Instituting legislative reform Instituting legislative reform typically takes three years or more

Implementing reform of institutional arrangements Implementing institutional

reforms across all sectors

horizontally as well as vertically

may take a relatively short time

Implementing institutional reforms across

all sectors horizontally may be all that is

required depending upon the mechanisms

for fund transfers

Implementing institutional reforms across all

sectors horizontally as well as vertically can

make this in practice a long drawn out process

Reforming the chart of accounts and the classification

of the personnel/payroll database

The capacity development

associated with the

implementation of a new chart of

accounts tends to involve fewer

spending units

The capacity development associated with

the implementation of a new chart of

accounts tends to involve fewer spending

units

The capacity development associated with the

implementation of a new chart of accounts tends

to involve spending units

Reforming the budget release and control systems;

along with the reporting the financial reporting

The limited spatial extent limits

the time required for roll out

Roll out considerations may be limited to

horizontal elements across sectors

Roll out considerations may be quite extensive

given the requirement for both horizontal as well

as vertical roll out

Instituting performance based audit The institution of Performance Based Audits typically focuses upon the audit institutions

Total Time Required for PBB Reforms

The Basic PFM Systems remain weak 12 to 15 years 12 to 18 years 15 to 25 years

Basic PFM Systems are sufficiently strong 8 to 10 years 8 to 12 years 10 to 15 years

A PBB enabling Context has been effected 5 to 7 years 5 to 7 years 7 to 10 years

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